Bank of Canada Holds Rate, Maintains Tightening Despite Cooling Inflation
The Bank of Canada left its key interest rate unchanged at 5% today, which was expected. However, analysts had expected a dovish tone with hints of a future rate cut. Instead, the bank struck a conservative tone implying that rate cuts may not come until late 2024 or even 2025, after inflation has been brought to heel.
While inflation has eased to 2.8%, the Bank sees upside risks and a need for "sustained" progress before considering rate cuts.
Key Points:
Interest rate unchanged at 5%.
Bank continues quantitative tightening.
Global growth has been revised up, and inflation is expected to ease more gradually than previously anticipated.
Canadian growth is to pick up in 2024 but lag behind the global pace.
Inflation is forecast to stay around 3% near-term, reaching the target in 2025.
Bond yields (i.e., rates) surged after the announcement, putting upward pressure on mortgage rates.
The Bank's message:
Significant progress has been made on inflation, but it is too early to ease policy. Continued tightening is needed to ensure inflation stays on track for the 2% target.
